Friday, August 6, 2010

Waiting On NFP

The market is eagerly awaiting the NFP data that comes out on the first Friday of the month. The current expectations are for a loss of -65K on the top line, with private job growth of 90K. I have an opinion (this opinion along with $2 gets me in the subway) but won't give any forecasts or predictions. This monthly NFP figure is a volatile figure that is generally considered to be a lagging indicator. I much rather look at the weekly claims data that is less volatile and is forward looking. The weekly unemployment claims data released yesterday was a poor print and sets a bad omen for future payroll growth. There are far too many people at this stage of the recovery on unemployment. The weekly ADP private payroll figure was a little better than expected and that rallied the market earlier in the week, but even that figure is very poor. The ADP report states that private payroll gains were 42K. During the last recovery period following the recession in 2003, the ADP report was printing 125K jobs added. So a measly 42K jobs added is not something we should be celebrating. Going back to the weekly claims data, at this point those figures should be below 400K, but are still stubbornly close to 500K. I have stated that this market is not set up or ready for a 500K or higher print on the claims data and I fear we are headed for that.

Going back to today's NFP number. Any positive announcement I am sure will have the bulls Rockin and Rollin, and any bad print most likely will be spun into a positive tone by the MSM. Looking past all of the nonsense regarding payrolls and the such we really cant take these numbers seriously. Whatever the print is, it will most likely be revised to some such that renders all of the opinion before and after useless.

Even looking beyond this announcement we have to look at the structural changes that are happening within the labor market. This structural shift is long term and negative. I keep hearing administration officials talk about the recession as if it was a random event. I keep hearing "8 Million people lost their jobs in this recession". This is wrong! The correct quote should be "We lost 8 Million Jobs during this recession". There is a big difference between 8M lost jobs and 8M people losing their jobs. The later infers that those 8M jobs are magically coming back. The former paints a much different picture as those 8M lost jobs are gone forever.

Macroeconomics is the study supply and demand. Obviously there is tremendous demand for jobs as the full unofficial unemployment rate is over 17%, but we have to look at the available supply of jobs to get a much fuller picture of the labor situation.

The hope was as the recovery takes hold there is sufficient labor market slack that will bleed jobs back into the labor force. So far this has not happened. From reading many smart economic blogs, most have argued recently that the failure of the unemployment rate to decline significantly over the past 6-9 months despite a notable rise in job vacancies shows that the “matching efficiency” of the US labor market, its ability to turn open positions into jobs has started to deteriorate. Such a development would suggest that the structural unemployment rate has risen and that there is perhaps not as much cyclical “slack” in the labor market as one might think at first glance. From this an increase in structural unemployment is greatly possible. The increase in job vacancies has coincided with a significant increase in gross hiring over the past year. However, neither vacancies nor hiring have risen by enough to create large numbers of net new jobs. The view from this perch remains that the primary job market problem is a shortfall in labor demand. Many people are looking for work but can't get matched up with the right job because of a general lack of labor demand.

The bottom line is what ever the print is up 75K or whatever, its still not going to cut it. To get back to some level of job equilibrium, the NFM has to print some 130K a month for the next 5 years just to get back in the black. It's not happening. No matter how much bogus money ($1.7T) non financial institutions are sitting on, they have some 4X more in debt liabilities that need to be refinanced and rolled over. The US economy the way it is currently configured and constructed is not in job creation mode. People are looking for asset inflation and jobs and will receive rocks in return. This economy is in deflation/deleveraging mode. You cant look at the CRB Index as that is manipulated by Wall Street Financial Institutions who have run up commodity prices. When the 2nd round of deleveraging hits the financial sector there will be little doubt where asset prices and jobs are going.